Thursday, July 13, 2006

Microsoft's tacit surrender to antitrust

This week the European Commission issued a 280.5 million euro fine against Microsoft for failing to fully respect their 2004 antitrust ruling. But first, a brief synopsis: In 2004, EC antitrust regulators ordered Microsoft to pay a massive 497 million euro fine for its ‘monopolization’ of the computer operating system market, and required that the software giant sell a version of its Windows operating system without Media Player software and divulge information on Windows source code needed by makers of rival products. In effect, the EC regulators argued that Microsoft’s success—and its desire to add to that success—made it a coercive threat to its customers and rival firms under the antitrust laws, and they punished Microsoft accordingly.

So what then was Microsoft’s answer to the EC regulators’ order? It paid its fine, offered a version of Windows minus its Media player technology (which predictably enough, no one wanted), and failed to sufficiently meet the EC’s demand that it open up Windows to rivals. In a press briefing on the day of the EC’s new fine, Microsoft general counsel Brad Smith cited the order’s “lack of clarity” as his firm’s defense.

“Lack of clarity?” All of antitrust is unclear. The “intent to monopolize” and “monopoly maintenance” can be interpreted to mean anything and is, as the history of antirust enforcement, from its beginnings with the case against Standard Oil to today’s case against Microsoft itself proves. Yet while Microsoft has made tremendous efforts to argue that it is innocent of violating the antitrust laws in the courts, it has nevertheless been unwilling to publicly attack these laws as such or question the premise behind them. The firm’s seeming position is that the antitrust laws are just fine—but they don’t apply to Microsoft. In the process, Microsoft has forfeited its most potent weapon against those who seek to regulate it.

For at root, Microsoft was a tremendous firm (and I use the word “was” deliberately; for a company of its size, Microsoft has long ceased being an important technological innovator). More than any other company, it was Microsoft that launched the PC revolution which helped put a computer on every desk. Today however, Microsoft is only a shadow of what it once was, for despite all its denials, Microsoft has been effectively neutered by antitrust. Today it is Google that has invigorated search, Apple that has invigorated multimedia, and Mozilla Firefox that has invigorated web browsing—not Microsoft. Innovation and regulation don’t go hand in hand.

Thus it is easy to see why Microsoft’s star is fading. Every time you hear an antirust regulator talk about Microsoft’s next round of operating system upgrades, you hear them say that Microsoft had best tread lightly—or else. What incentive then does an individual have to innovate if at every moment he must look over his shoulder to ensure that his ideas won’t prompt a competitor or a regulator to file an antitrust suit that destroys both him and his innovations? Which force is more powerful—the joy of creation (and the profits it may bring), or the omnipresent threat of treble damages under antitrust?

And therein lies Microsoft’s greatest failure. If Microsoft were to have argued against the validity of the antitrust laws, it would have highlighted that these laws negate a businessman’s moral right to his property. It would have highlighted that it is not an act of force to put a product on the market that becomes the industry standard and to integrate new features into that product. Microsoft can no more force itself upon its customers than any other firm—only a government regulator possess the power of outright coercion. And thus Microsoft failed to make the most important point in any discussion about antitrust—the point that there is a difference between a businessman and a regulator, a distinction that the philosopher Harry Binswanger once wryly described as the difference between the “dollar and the gun.” Microsoft simply refused to declare its moral innocence and refute the charges of attackers on their own terms. It left that work to others (it even supported my organization’s advocacy for a brief time), but it never spoke unequivocally in its own defense and in its own voice.

Why? I recall when Bill Gates, while addressing the Columbia Business School, remarked that “you don't have to go as far as Ayn Rand to think that allowing businesses to keep innovating in their product is a good idea.” In his case, he certainly lived up to his words; instead of going as far as Ayn Rand and her philosophy of reason and individual rights, he instead elected to cravenly apologize for his wealth, often repeating the line that he is a mere custodian of society’s money and that he wanted to “give back” to others. Now, after years of after antitrust suit after antitrust suit, he has chosen to dedicate his attention and the proceeds of his vast fortune to altruistic endeavors such as curing the sundry diseases that plague the people of Africa’s dictatorships. And since Gates has announced that he will dedicate the rest of his years to others, even those who once attacked him for his riches have seemed to warm to him—yet Microsoft, its employees and shareholders are none the better for it.

Thus the silence of Microsoft’s leaders on the evils of the antitrust laws—a deliberate silence, for they must live with the choking fallout of these laws every day—is nothing less than an act of sanction. Let us not forget, the firm’s tacit support for the antitrust laws has already cost Microsoft billions of dollars in fines and settlement fees. At what point does one simply stop and say, “enough is enough”?

Many will argue that Microsoft had no choice—that the regulators have too much power and thus cannot be resisted. I hold this argument to be false, for it undersells the power of dissent. A dissenter speaking in defense of truth won’t necessarily win outright, but he can begin to change the terms of the debate. He can check excesses, and over time, he can build a movement that will win him his ultimate victory. As long as Microsoft is a market leader, the company will be a target for looters acting under the guise of antitrust. As long as regulators and Microsoft’s competitors have license to file antitrust suits, there will be no light at the end of the tunnel for the firm—or any other successful firm. Effectively defeating antitrust must be a long-term priority for Microsoft (and other firms with the sense to protect their own self-interest), for no company that is consistently denied the ability to improve its products can long last.

In defense of its virtues, in exasperation of being cut down and cut down again, Microsoft should simply declare that it seeks the abolition of antitrust, and refuse to rest until these laws are repealed—or risk fading into obscurity. If Microsoft takes this righteous stand, it will be known for both leading the PC revolution, and for leading a far greater revolution in American business.